Definition of Lien
A lien is a legal document filed by a creditor (lender) in order to record its claim on certain assets of the debtor (borrower). The lien is likely filed at the county government office where the debtor’s property is located. The lien protects the creditor until the debtor pays the amount owed.
A lien on a company’s assets should be disclosed in the company’s notes to the financial statements.
Examples of Liens
The following are examples of liens:
- A bank lends a retailer $50,000 with the retailer’s inventory as collateral. The bank files a lien with the county government to make known the bank’s claim and to protect the bank’s position regarding the inventory.
- A bank lends a company $500,000 in the form of a real estate mortgage loan to purchase a warehouse. The bank files a mortgage lien at the county government office in order to provide security for the bank’s loan. This lien will require that the lender be paid the amount owed before the real estate can be transferred to another party.
- The U.S. government may file a lien on a company’s assets until a tax obligation has been paid.
